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Pigouvian-tax game Nutritionists and medical doctors say that we consume too much salt. How can we fix that? Apply a tax A model of an economy reducing consumption of a good with externalities by taxing it

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How to tax Game – Problem - Salt isn’t a separate good in our model economy. Can’t tax it directly. – Solution - Tax the good with added salt Carbon – More complicated

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Taxing carbon - a misnomer,... CO2 is the real problem. Except that some other green-house gases are even more potent. Fossil fuels differ in the amount of CO2 they emit when burned. We don’t buy carbon or carbon dioxide by themselves very much. Carbon is converted to CO2 at many places in our economy.

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Some answers What to tax? – Tons of CO2 equivalents emitted by each fossil fuel Where to impose the tax? – At the mine, well or border – Let the tax percolate thru the economy, affecting everybody in proportion to their CO2 emissions.